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Oil & Gas Stock Roundup: ConocoPhillips & Eni Grab the Headlines This Week

It was a week wherein oil prices lost some more steam but natural gas futures reclaimed the $5 threshold.

On the headline front, upstream biggie ConocoPhillips COP vowed to go ahead with its contentious Willow development project in Alaska, while Italy’s energy behemoth Eni SpA E launched a partnership to develop biofuels from agricultural products. News related to TechnipFMC plc FTI, ExxonMobil XOM and Viper Energy Partners VNOM also made it to the top stories.

Overall, it was a mixed seven-day period for the sector. West Texas Intermediate (WTI) crude futures lost 5.8% to close at $76.10 per barrel, while natural gas prices rose 5.7% to end at $5.065 per million British thermal units (MMBtu). In particular, the oil market extended its decline from the previous three weeks.

Coming back to the week ended Nov 19, oil prices dipped as investors looked past the Energy Information Administration’s bullish inventory report and turned their attention to the possible release of oil from the U.S. Strategic Petroleum Reserve (“SPR”) into the commercial market.

In an all-out effort to keep a lid on soaring pump prices, President Biden could reportedly order an emergency drawdown of oil from the SPR for a little relief. The SPR is a massive supply of government crude that is used in unforeseen circumstances. There also seemed to be some rumors that China and the United States might be mulling a joint release of supplies to clamp down on high fuel prices. In fact, it’s the SPR story (or the possibility of more oil) that sent the market lower yesterday despite an encouraging government release.

Meanwhile, natural gas finished up despite a higher-than-expected increase in supplies. The uptick in price is the result of an encouraging weather outlook (and the subsequent pickup in heating demand) and the ongoing strength in U.S. LNG exports.

Recap of the Week’s Most-Important Stories

1.  ConocoPhillips will proceed with its massive Willow development project on the Alaska North Slope, despite a recent court ruling that revoked the project’s approval.

ConocoPhillips — carrying a Zacks Rank #1 (Strong Buy) — is the largest crude producer in Alaska. It has been a leader in oil and gas exploration and development in the state for decades. Willow holds about 600 million barrels of recoverable oil. If developed, the project is expected to produce more than 160,000 barrels per day (bpd). It will become the westernmost operating oil field on the North Slope.

You can see the complete list of today’s Zacks #1 Rank stocks here.

ConocoPhillips cited that the legal setbacks have not affected the Willow timeline. COP plans to spend $4-$6 billion on the Willow project. The upstream player continues its technical planning and cost analysis to reach a final investment decision next year. (ConocoPhillips to Proceed With the Willow Oil Project)

2.   Eni formed a joint venture with the BF Group partner to develop renewable agricultural products for the production of biofuels. The initiative is part of its plans to achieve carbon neutrality by 2050. The companies, through their 50/50 joint venture, will develop projects to explore and examine agricultural seeds from oil plants, which will be used as feedstock at Eni's bio-refineries.

Eni produces advanced biofuels at its bio-refineries in Gela and Venice Porto Marghera. Advanced biofuels play an important role in reducing greenhouse gas emissions from the transport sector. From 2023, Eni will no longer use palm oil in its manufacturing procedures.

Beside this, the agreement enables Eni to acquire a minority stake in the subsidiary of BF Bonifiche Ferraresi, which is the largest Italy-based farm that utilizes agricultural surface area. The partnership marks Eni’s entry into BF's share capital through a reserved capital increase. (Eni, BF Form Joint Venture to Develop Renewable Products)

3   At its 2021 Analyst Day last week, oilfield services provider TechnipFMC presented a summary of its 2025 operational targets. The company’s intermediate-term financial performance will be largely driven by its Subsea unit, which constitutes some 85% of its adjusted EBITDA and 95% of backlog. FTI also looks poised to prioritize shareholder distribution and improve free cash flow conversion.

TechnipFMC said it expected subsea inbound orders (including services) to reach nearly $8 billion by 2025 — in line with or eclipsing the 2019 peak levels. In particular, FTI sees subsea services orders to grow approximately 35% (from $1.1 billion this year) through the middle of this decade.

Subsea revenues are set to reach $7 billion during that time frame, while adjusted EBITDA is likely to jump more than 85% from the 2021 guidance midpoint to $1.05 billion. The adjusted EBITDA margin is forecast to be around 15%, expanding from the 10.5% targeted for 2021, primarily built on the company’s increased productivity and utilization. (All You Need to Know About TechnipFMC's Analyst Day)

4.   The latest oil and gas lease sale for the Gulf of Mexico successfully attracted interest from several energy companies. With rising energy prices amid renewed demand, energy companies have sufficient incentives to drill in the Gulf of Mexico.

ExxonMobil was one of the top bidders at the federal oil lease auction in the Gulf of Mexico. XOM bid for about one-third of the tracts for $14.9 million, making it the highest bidder by acreage.

ExxonMobil submitted bids for 94 drilling leases in shallow waters along the Texas coastline. Most analysts opine that XOM’s acquisition of shallow water blocks could be a possible initiative for its carbon capture project in the region. The proposed facility will store 50 million tons of carbon dioxide per year by 2030 and double that by 2040. (Gulf of Mexico Lease Sale Draws a Combined $192M From Bidders)

5.  Viper Energy Partners announced that the board of directors of its General Partner recently raised the authorized amount of its common unit repurchase program to $150 million.

Viper Energy Partners intends to employ its cash on hand, free operating cashflows and proceeds from assets divestments for repurchasing units under the buyback program. VNOM added that the authorization has been extended indefinitely.

Viper Energy Partners also recently rewarded unitholders by increasing cash distribution. VNOM increased cash distribution sequentially by 15% to 38 cents per unit. This reflects the royalty-focused oil and gas player’s strong focus on returning capital to unit holders. Banking on its strong operations, VNOM is also focusing on reducing debt load. (Viper Energy Raises Unit Buyback Plan Authorization)

Price Performance

The following table shows the price movement of some major oil and gas players over the past week and during the last six months.

Company    Last Week    Last 6 Months

XOM                 -4.9%               +3%
CVX                  -0.9%              +7.5%
COP                 -3.8%               +25.1%
OXY                  -9.2%               +15.9%
SLB                  -8.3%               -6%
RIG                  -12.6%             -18.1%
VLO                  -8.7%               -10.5%
MPC                 -7.6%               +1.2%

The Energy Select Sector SPDR — a popular way to track energy companies — was down 5% last week. But over the past six months, the sector tracker has increased 4.8%.

What’s Next in the Energy World?

As the global oil consumption outlook strengthens amid tightening fundamentals, market participants will closely track the regular releases to watch for signs that could further validate the upward momentum. In this context, the U.S. government’s statistics on oil and natural gas — one of the few solid indicators that come out regularly — will be on energy traders' radar. Data on rig count from the oilfield service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is closely followed too. News related to coronavirus vaccine approval/rollout/distribution will be of utmost importance.


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